Climate change is an issue front of mind for many these days. Even companies are now viewing it as a credible risk to our way of life. ASX shares are likely to be impacted by climate change, but it could also reap huge benefits for companies working towards net zero emissions.
At present, the endeavour to decarbonise the planet comes with an estimated $41 trillion bill. To put that into perspective, that is roughly twice the annual gross domestic product (GDP) of the United States. The sheer scale of this mission could present an opportunity that has not been witnessed since the internet.
An opportunity heating up
The latest Intergovernmental Panel on Climate Change (IPCC) report, released in August, has brought increased attention to the severity of consequences from climate change. In particular, ASX shares exposed to coal mining, oil drilling, and gas extraction bore the brunt of negativity from the report – including comments that such industries could face even tighter restrictions.
Furthermore, the studies published in the report showed that global temperatures were likely to increase 1.5 degrees Celsius by 2030 without action. Understandably, there is a large push to fund initiatives to ensure this is not the case.
Enter the ESG players, committed to environmental, social and governance goals. The question is exactly how big could this ESG sector become? Well, one portfolio manager has deemed it the next big mega-trend.
In an interview with The Australian Financial Review, portfolio manager at Munro Partners James Tsinidis stated:
Climate change is the next major mega-trend, and we believe it represents the biggest investment opportunity since the internet. We’re just at the beginning of the next big S-curve, a massive and sustainable decades-long growth trend.
Opportunity for ASX shares
The risks posed by climate change have moved to the front of minds and pitch decks in recent years. According to Macquarie Group, 38% of S&P/ASX 200 Index (ASX: XJO) companies now have net zero emissions targets. The portfolio manager believes the sizeable expenditure expected puts ESG-centred shares in good stead.
Out of the $41 trillion, about 25% is anticipated to be spent on energy efficiency. Meanwhile, 18% is slated to be allocated towards renewable energy. Some ASX-listed shares in this sector include Infratil Ltd (ASX: IFT), Mercury NZ Ltd (ASX: MCY), and Genex Power Ltd (ASX: GNX).
Adding to this belief, BlackRock’s Wei Li mentioned the shift towards sustainable investing is still early in the piece. Moreover, Li said, “We expect green assets that are likely to benefit from the transition to a low-carbon economy to outperform during this shift.”